IOSR Journal of Mechanical and Civil Engineering (IOSR-JMCE)
e-ISSN: 2278-1684,p-ISSN: 2320-334X, Volume 11, Issue 2 Ver. V (Mar- Apr. 2014), PP 14-25
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Study and Rate Analysis of Escalation in Construction industry
K. Vamsidhar1, D. A. Eshwarswaroop
2, K. Ayyappapreamkrishna
3,
R. Gopinath4
1,2,3Final Year Student, Department of Civil Engineering , Sathyabama University, Chennai, India.
4Assistant Professor, Department of Civil Engineering, Sathyabama University, Chennai, India.
Abstract: The project is said to be successful when it is completed in desired time and cost. The construction delays are common problems in private residential projects in Chennai city. This problem occurs frequently
during life time leading to dispute and litigations. Therefore it is essential to study and analyse .causes of
construction delay. The construction industry is large, volatile and requires tremendous capital outlays. Delay
of the project is a main factor and major cause of construction claims. There is an acute necessity for a detailed
investigation to identify the delay factors and choose correct actions to minimize the adverse effect of delay on
time, within cost and for high quality output
I. General The construction industry has a major role in the development of the Indian economy. This industry
consumes 40 to 50% of the national five year plan outlay and contributes 20% of gross domestic product.
Medium to large construction projects take over a year for completion and the cost of materials and labour often
increase, which leads to major problems in administration of the contract.
Over the past few years the construction industry has been facing several problems due to rapid
increase in the price of construction materials, labour, interest charges and equipment cost. Rate escalation is
defined as changes in the cost or price of specific goods or services in a given economy over a period. This is a
similar to the concepts of inflation and deflation except that escalation is specific to an item or class of items, it
is often not primarily driven by changes in the money supply, and it tends to be less sustained.
While escalation includes general inflation related to the money supply, it is also driven by changes in
technology, practices, and particularly supply and demand imbalances that are specific to a good or service in a
given economy. For example, while general inflation in the US was less than 5% in the 2003-2007 time period,
steel prices increased by over 50% because of supply-demand imbalance. Cost escalation may contribute to a
project cost overrun. In particular, this increase has been a major problem to the construction industry. In order
to find out the percentage increase in cost of construction, a study and analysis has been done in this project
Problems And Issues Due To Rate Escalation
Price escalations have been affecting the construction industry during the last year causing many
problems and many developers to rethink projects. Price escalation produces delays in construction projects,
reduced scope projects or projects being cancelled. Escalation clauses could also impact public projects
adversely due to the fact that prices being submitted are not being guaranteed during long period of time. In the
past, general contractors were able to hold subcontractors and suppliers to their quotes for 60 days, 90 days or
120 days. Because of escalation fears, owners are finding fewer bidders for their projects, some projects need to
find alternatives funding sources or canceling the project if additional money is not available. Contractor and
supplier fears regarding potential, future price escalation, and the absence of price escalation clauses in
most construction contracts, often leads to higher contract prices and larger project costs.
1.3 SCOPE
Construction includes building and civil engineering projects including work by contractors, by
individual, by public sector direct labor or own account organizations and by construction units in commercial
or industrial organizations that are recorded to other industries.
The definition of construction output may include professional services such as designers, planners,
managers etc and it may include some but not necessarily all informal construction activity.
1.4 OBJECTIVE
The objective of the proposed work is to compare the cost of construction such as building materials, labours and equipments for past six years from the year 2008 to 2013.
To find out various parameters that influences increase in the cost of construction.
http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Deflationhttp://en.wikipedia.org/wiki/Cost_overrunhttp://construction.about.com/od/Bidding-Process/a/Estimating-Structural-Steel.htmhttp://construction.about.com/od/Construction-Management/a/Types-Of-Construction-Contracts.htm
Study and Rate Analysis of Escalation in Construction industry
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To forecast the percentage increase in cost of construction for the next three years 2014, 2015 and 2016. To create a model that guides planners for quoting long term projects.
II. Scheme Of Work Below given fig 2.1 represents the scheme of work followed in the project.
Fig 2.1 Methodology
Construction can be subdivided into new work and work to existing buildings and
the latter can be subdivided into refurbishment and improvement and repair and maintenance
2.2 Methods Of Forecasting Factor
Construction cost indices have been used to measure the cost trends in the construction industry.
Estimating the increase in price over the long term is almost impossible because of the many uncertainties
beyond the control of all parties. The same is true of long term construction projects with multiyear schedules
and start dates in the future. Despite this difficulty, the owners of large long-term projects need to come up with
the estimated cost of these projects. The more prudent way to approach these problems is to calculate a range of
possible costs rather than a single figure. Forecasting methods for escalation factors can be grouped into two
major categories:
The last condition implies that some of the past pattern will continue into the future. This is an
underlying premise of all the quantitative and many qualitative forecasting methods. Quantitative methods can
be divided into two major categories: statistical and causal methods. Statistical methods utilize time-series
analysis and curve fitting methods to forecast the variable in the future.
n the other hand, causal methods are developed assuming that the variable to be forecasted presents an
explanatory or causal relationship with one or more independent variables.
2.2.1.1 Simple average and exponential smoothing
Examples of statistical methods consist of simple average and exponential smoothing. The method of
simple average is basically to take average of all observed data as the forecast. The simple average is suitable
for data that fluctuate around a constant or have a slowly changing level and do not have a trend or seasonal
effects. The fundamental principle of the exponential smoothing is that the values of the variable in the latest
periods have more impact on the forecast and therefore should be given more weight. This method implies that
as historical data get older, their weight will decrease exponentially. Usually, it is a poor model for medium or
long term forecast. Forecasts can be thrown into great error because of large random fluctuation in recent
periods.
2.2.1.2 Boxjenkins approach
Other more complicated statistical forecasting methods are sometimes used also, but rarely in
construction. For example, methods based on auto regressive integrated moving average ARIMA models are
available; however their use has been limited. The time series analysis, forecasting, and control with the
ARIMA model have come to be known as BoxJenkins methodology. Despite BoxJenkins promising results
and power, forecasters and decision makers seldom use this method because it is complicated. It is best suited to
short-term forecast, such as daily, weekly, or monthly and it require a large amount of data.
